The Next Chapter: Municipalities Are Using Chapter 9 to Fend Off Creditors

Friends and family held a candlelight vigilin Prichard in March for firefighter Rex Walland 15 other retirees who died after theAlabama town suspended pension paymentsin 2009. Photo by The Press-Register,Mobile, Ala./John David Mercer

Rex Wall was a firefighter and fire marshal in Prichard, Ala., for more than three decades. He always said he could have made more money in the private sector, but he loved being a fireman.

Plus the city offered comfortable pension benefits after only 30 years of consecutive service. The lower paychecks and the long hours were rewarded with the ability for him to retire in his late 50s. In addition, state law required Prichard to pay his pension.

“It’s not like the government can go bankrupt,” he jokingly told friends. “What could go wrong?”

In October 2009, Prichard’s pension fund went dry. The city stopped sending Wall and 143 other Prichard retirees their checks totaling $140,000 monthly.

Wall, then 62, was too young to qualify for Social Security and Medicare. Due to the recession, he wasn’t able to find a job. His feeble savings quickly evaporated. He fell into depression and became chronically ill.

Nine months later, Wall was found dead in his house. His electricity and gas had been turned off. The city shut off his water. Prescriptions for medications had gone unfilled for months.

Before he died, Wall joined with Anders and retired Prichard police officers, firefighters, garbage collectors and other municipal workers in the winter of 2009 to file a class action against city leaders. The complaint said the retirees earned their pension by their decades of service to the town and demanded that the city give them the $2.7 million in pension benefits that had gone unpaid since October 2009.

The city of Prichard responded by filing federal Chapter 9 bankruptcy, claiming there was simply no money left to pay.

Lawyers representing the city said there were only two choices: Restructure and greatly reduce its pension obligations or simply go out of business as a government.

Click here to read the rest of “The Next Chapter” from the November issue of the ABA Journal.